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Book Reviews

Kenyan- South Africa dialogue on Financing of Sub-National Government

Volume 16, Issue 2  | 
Published 30/10/2019
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Wanjiru Gikonyo is the National Coordinator of The Institute for Social Accountability.

The views expressed herein are her personal views. This email address is being protected from spambots. You need JavaScript enabled to view it.

 

The adequate financing of subnational governments is a central pillar of devolution. A review of the Kenyan-South African Dialogue on Devolution provides valuable insights on the subject. This is particularly relevant in view of the standoff which has stalled financing of sub-national government and portends a shutdown of basic public services in Kenya.

Khumulo and others writing on the South African intergovernmental fiscal system, reflect on lessons from 20 years of implementation. Kirira by contrast, captures Kenya’s devolved system a mere two years into its implementation, and takes a historical and predictive approach. It is telling that several of his concerns have been borne out in practice.  To reconcile the chronological gap, this article takes both a comparative and interpretative approach.

Similarities between the two systems

Kenya adopted a form of devolution which closely mirrors South Africa’s, and both systems demonstrate many similarities.  Both country constitutions have a very similar fiscal devolution architecture. In both cases, national and subnational levels of government are distinct and are assigned exclusive or concurrent functions. They are to conduct their mutual relations based on cooperative governance and are strongly interdependent. 

In both countries, national government is assigned macroeconomic expenditure management. Sub-national spheres are assigned service delivery mandates. In South Africa’s case there are three spheres of government, with local government responsible for basic service delivery. In Kenya there are two, with county governments also responsible for basic service delivery.  One key difference between the two countries is that education is assigned to provinces in South Africa, whereas in Kenya the national government retains all but pre-primary and village polytechnic education functions. This has an implication for the division of revenue.

The constitution in both countries provide that funds should follow functions and assign the different levels of government revenue raising mandates. In both, the national government is given the widest revenue raising mandates, with sub-national being assigned a narrower revenue base. This creates an inevitable financing gap for subnational governments as their expenditure mandates outstrip revenue mandates. To address the fiscal gap, the constitution in both countries provides an elaborate mechanism for the division of revenue raised nationally between the different spheres of government in line with their functional responsibilities. The division of revenue (DOR) is to be informed by criteria enshrined in the constitution and seeks to ensure minimum basic service standards throughout the country. This constitutes the unconditional share of revenue which counties use to meet their local priorities, as informed by their public participation processes.

In both contexts, the constitution seeks to balance the virtual monopoly that national government has over revenue raising, by enshrining the right of sub-national governments to a share in the revenue raised nationally through the DOR process.  The DOR is heavily arbitrated by an independent constitutional body: in Kenya the Commission on Revenue Allocation (CRA) and in South Africa the Financial Fiscal Commission (FFC), both of which exercise advisory powers to the national government with respect to the division and sharing of revenue, and fiscal matters pertaining to devolution. This is the process that has broken down in Kenya.

The constitution also makes provision for conditional financial transfers from National Government to sub-national to address further fiscal gaps. These may be occasioned by historic, geographical and other fiscal deficits that cannot be addressed through the unconditional share of revenue. Conditional grants are also used by national government to direct its development priorities at the subnational level, through the county governments.   

In both contexts, the lack of fiscal capacity and compliance is a major concern at subnational level resulting in irregular, unauthorized, fruitless and wasteful expenditure – what Kenyans roundly term as corruption.

Despite the strong commonalties between the two countries, there are subtle differences that bear reflection.

Contrasts between the Fiscal Relations Systems

The political settlement in South Africa resulted in a three-tiered devolution system, primarily to assuage unitary forces within the Africa National Congress (ANC) by instituting a softer form of federalism. Provinces are therefore assigned significant service delivery mandates but have very limited revenue mandates. They are therefore almost fully dependent on national government transfers and can only procure debt with permission from the national treasury. By contrast the Local Authorities (LA) enjoy significant fiscal autonomy on account of property taxes and the ability to borrow externally without national government approval. External borrowing is nonetheless strongly regulated by law, and local authorities are not allowed to run budget deficits. In Kenya county governments enjoy the similar tax base as subnational governments in South Africa but can only borrow with National Government guarantee. County governments in Kenya can therefore be said to be fiscally dependent on national government, unlike the LAs in South Africa which are not.

The South African system provides for an intergovernmental Loans Coordinating Committee comprising the National and provincial Finance ministers. Kenya lacks an intergovernmental borrowing framework and county borrowing approval is at the discretion of the national treasury.

The South African division of revenue process caters for political interests in a more accountable manner, whereas in Kenya political representation may be viewed as largely discretional in part due to the nature of political parties in Kenya. In Kenya, the CRA commissioners are appointed by the President based on party affiliation which is changeable due the transient nature of political parties.  In South Africa by contrast, appointments are made by the president in consultation with provincial premiers and the South African Local Government Association both of which have a stronger grounding in the sub-national spheres of government. 

The FCC has a stronger constitutional mandate than the CRA, and provides final comments into the DOR bill prior to its adoption by Parliament. Kirira nonetheless faults the CRA in the generation of a sharing formula which does not respond to the service delivery needs of county governments, as a result of which it remains closely aligned to national government interests, in contrast to South Africa’s which is more closely aligned to service delivery mandates and revenue capacities. In 2013/14 the national government in South Africa retained only 48% of revenue raised nationally in 2013, whereas in Kenya the national government proposes to retain 87% in 2019 resulting in the standoff with county governments.

In Kenya supremacy battles between the National Assembly and Senate has marked the DOR process and forced the Senate to seek a Supreme Court advisory to reinforce their legislative authority. 

The national treasury under both jurisdictions has powers to stop money to counties which flout public finance management requirements. In South Africa these powers have been utilized at provincial level, while the treasury has taken a more cautious approach with local authorities. In Kenya’s case the Treasury has not exercised this provision.

Final reflection

In closing, the Kenyan-South African Dialogue on Devolution offers valuable insights in numerous implementation gaps in Kenya’s devolution architecture. While Kenya borrowed heavily from the South African legal architecture, the failure to secure the fiscal autonomy of county governments, through clear borrowing mandates and intergovernmental borrowing safeguards has been exploited by national government, resulting in underfunding of county governments.

The Kenyan fiscal intergovernmental system also lacks political safeguards to protect county government interests, from the interests of the national government which threatens to kill devolution by denying counties funding. Devolution in Kenya is also suffering due to a failure by political actors to embrace consultative governance, which in large part is rooted in the inherently adversarial presidential system of government. The quest for accountable use of public resources is a challenge in both countries, and calls for more transparency, more citizen engagement and swifter enforcement.

Despite all the challenges, the overriding concern is one of political leadership. The strongest surest safeguard for the protection of citizen sovereignty as exercised through devolution is a culture of political accountability and constitutionalism.

 

Last modified on Wednesday, 06 November 2019 17:18

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